ENRON'S COLLAPSE; Excerpts From a House Hearing on Destruction of Enron Documents

Following are excerpts from remarks at a hearing yesterday before the House Energy and Commerce Committee on the destruction of documents related to the Enron Corporation, as recorded by the Federal Document Clearing House, a private transcription service. The speakers included Representatives James C. Greenwood, Peter Deutsch, Billy Tauzin and Diana DeGette; the Arthur Andersen officials C. E. Andrews, Dorsey L. Baskin and Nancy Temple; and David B. Duncan, a former partner at Arthur Andersen.

MR. GREENWOOD -- Mr. Duncan is here with us today under subpoena. To date, Mr. Duncan has cooperated with this committee in our search for the facts by submitting to an interview last week with our committee investigator that lasted more than four hours.

Yet, we received a letter from his counsel yesterday stating that Mr. Duncan authorized his counsel to advise the committee that he will, quote, ''rely on his constitutional right not to testify,'' close quote.

Mr. Duncan, you are aware that the committee is holding an investigative hearing and that, when doing so, we have the practice of taking testimony under oath. Do you have objection to testifying under oath?

MR. DUNCAN -- No, sir.

MR. GREENWOOD -- Thank you.

The chair also advises you that, under the rules of the House and the rules of the committee, you are entitled to be advised by counsel.

Do you desire to be advised by counsel during your testimony today?

MR. DUNCAN -- Yes, sir.

MR. GREENWOOD -- O.K. In that case, would you please rise and raise your right hand, and I will swear you in.

Mr. Duncan, do you swear that you will tell -- the testimony you will give this committee is the truth, the whole truth and nothing but the truth?

MR. DUNCAN -- Yes, I do.

MR. GREENWOOD -- Thank you, Mr. Duncan. You are now under oath, and you may give a five-minute summary of your written testimony if you choose to.

MR. DUNCAN -- I have no summary, sir.

MR. GREENWOOD -- O.K. The chair will recognize himself for questioning.

Mr. Duncan, Enron robbed the bank. Arthur Andersen provided the getaway car, and they say you were at the wheel.

I have a specific question for you, Mr. Duncan. You were fired by Andersen last week for orchestrating an expedited effort among the Andersen-Enron engagement team to destroy thousands of paper documents and electronic files relating to the Enron matter after learning of an inquiry by the Securities and Exchange Commission into Enron's complex financial transactions.

Did you give an order to destroy documents in an attempt to subvert governmental investigations into Enron's financial collapse? And if so, did you do so at the direction or suggestion of anyone at Andersen or at Enron?

MR. DUNCAN -- Mr. Chairman, I would like to answer the committee's questions, but on the advice of my counsel I respectfully decline to answer the question based on the protection afforded me under the Constitution of the United States.

MR. GREENWOOD -- Let me be clear, Mr. Duncan. Are you refusing to answer the question on the basis of the protections afforded to you under the Fifth Amendment to the United States Constitution?

MR. DUNCAN -- Again, on the advice of my counsel, I respectfully decline to answer the question based on the protection afforded me under the United States Constitution.

MR. GREENWOOD -- Will you invoke your Fifth Amendment rights in response to all of our questions here today?

MR. DUNCAN -- Respectfully, that will be my response to all your questions.

MR. GREENWOOD -- I'm disappointed to hear that, but it is therefore the chair's intention to dismiss the witness.

Mr. Duncan, we thank you for your attendance today and your respect for this committee's process. You are dismissed, and perhaps we will see you on another occasion.

MR. GREENWOOD -- I think it is very important to lay out for the subcommittee, our panel and our audience our current understanding of Mr. Duncan's recollection of relevant events based on the committee counsel's interview of Mr. Duncan last week.

It is my understanding that Mr. Duncan said that, in the September and October time period, he participated in frequent meetings and teleconferences with a group of senior-level Andersen partners in Houston and Chicago to discuss matters relating to the Enron account.

That group included Ms. Nancy Temple from the legal group and Mr. Michael Odom, the audit practice director, both of whom are testifying today.

The consultation group, which was created in late August or early September, was fluid in membership and was formed in response to growing concerns over the accounting for Enron's special-purpose entities.

Specifically, Mr. Duncan said that the group was formed at the suggestion of Mr. Odom and himself in response to, one, Sherron Watkins' allegations of accounting improprieties on the Enron Raptor and LJM transactions; two, the $1 billion accounting error discovered in August by Enron and Andersen with respect to the accounting for the Raptor entities; and, three, the rapidly declining stock price of the Enron merchant assets transferred to the Raptor partnerships, which made it look like there would be a significant write-down by Enron.

During these conference calls prior to Oct. 12, 2001, Mr. Duncan recalls receiving advice from Ms. Temple with respect to the proper documentation of Andersen's evolving position with respect to the correct accounting for the Raptor transactions.

Also, prior to receiving Ms. Temple's Oct. 12 e-mail regarding compliance with Andersen's documentation retention policy, Mr. Duncan recalls Ms. Temple, on one or two of these three group conference calls, asking him, quote, ''How are you on compliance with the document retention policy on Enron?'' He said that his response to her was, ''At best, irregular.''

Mr. Duncan then received Ms. Temple's Oct. 12 e-mail, forwarding from Mr. Odom with a note, quote, ''More help,'' close quote. He did not know what Mr. Odom meant by that phrase, but he viewed Ms. Temple's e-mail as a follow-up to the question she had posed to him orally about compliance with the retention policy and as a device from his attorney to ensure that the entire Enron audit engagement team was in compliance with that policy.

He added that he had never before, during his lengthy tenure at Andersen, been asked about compliance with the retention policy, nor had he ever received such an e-mail about ensuring compliance with that policy from anyone in Andersen's legal group.

Mr. Duncan does not recall the precise date, but sometime after Oct. 12, 2001, Mr. Duncan met with his top Enron audit partners, Mr. Tom Bauer, Ms. Debra Cash and Mr. Roger Willard, to discuss the advice he had received from Ms. Temple.

According to Mr. Duncan, the meeting participants concluded that they should call a meeting of all the Enron audit managers to discuss timely compliance with the retention policy.

Mr. Duncan does not recall when this meeting occurred but does not dispute that his secretary sent out an e-mail on Oct. 23, 2001, calling an urgent meeting of the Enron managers for later that same day.

Just days earlier, on either Friday, Oct. 19, or Saturday, Oct. 20, Mr. Duncan had first learned of the S.E.C. informal inquiry of Enron. He recalled that he had discussions with the Andersen consultation group about the S.E.C. development over the weekend, including Ms. Temple.

He also recalled that on Oct. 22 he and other Andersen engagement team members met with Enron chief accounting officer Rick Causey to discuss the S.E.C. inquiry. Duncan said that Causey requested Andersen's assistance in creating documents to explain the related party transactions to the S.E.C.

Mr. Duncan said that at the meeting he called with all the Andersen audit managers on the Enron account, whenever it may have occurred, he advised them of the importance of compliance with the document retention policy and handed out copies of the policy to participants.

Mr. Duncan said that he observed individuals on the engagement team actively complying with the firm's document policies by shredding documents, and that the activity continued up until the 9th of November, when he received a voice mail from Ms. Temple ordering the preservation of all Enron-related documents.

Mr. Duncan also said that he destroyed some of his own Enron-related documents in an effort to comply with Andersen's document retention and destruction policies.

Again, that is my understanding of Mr. Duncan's interview with committee staff.

Mr. Deutsch, would you agree that I have characterized our current understanding of Mr. Duncan's recollection of relevant events accurately? . . .

MR. DEUTSCH -- I would.

MR. GREENWOOD -- Thank you.

MR. BASKIN -- My name is Dorsey Lee Baskin Jr.

Since 1999, I have been managing director of Andersen's assurance professional standards group, which has firm-wide responsibility for providing guidance on auditing standards, including professional standards relating to the preservation of audit work papers and client files. I've been at Andersen for almost 25 years, since receiving my M.B.A. from Texas A&M University in 1977.

I'm here with my partner, C. E. Andrews, who is managing partner for Andersen's global audit practice. He and I will both answer the committee's questions.

I would like to make three essential points at the outset of our testimony. First, as our C.E.O. has said, this is indeed a tragedy on many levels.

Second, the committee and the broader public should know that Andersen came forward voluntarily and disclosed the destruction of documents by Andersen personnel. However improper that destruction was, Andersen did not hide from its obligation to do what it could to take corrective action. We promptly alerted all investigative authorities, including this committee.

Although the firm was well aware of the potentially devastating impact this disclosure could have on our reputation, we did the right thing. We certainly are not proud of the document destruction, but we are proud of our decision to step forward and accept responsibility.

Third, it bears emphasis that Andersen has cooperated fully and unreservedly with all of the ongoing investigations into the destruction of Enron-related documents. We are determined to get to the bottom of what happened.

We have publicly acknowledged, and will continue to acknowledge, mistakes that we have made. We have tried, and will continue to try, to answer every question that is put to us. And we will take whatever decisive action is necessary to restore public confidence in the firm.

I have to tell you, in all candor, that we are limited in what we can say today about the destruction of documents by Andersen personnel working on the Enron engagement.

Our investigation into that destruction is far from complete. We have not yet had the opportunity to review all of the many relevant documents or to hear from all of the people who have relevant information.

But having said that, this is what I can tell you about Andersen's retention and destruction of documents.

To begin with, it is the usual, routine and wholly legitimate practice of auditors to preserve their final working papers while disposing of drafts, personal notes and other materials that are not necessary to support the audit report. So far as I'm aware, this is the policy of all the large accounting firms.

This policy toward document disposal reflects longstanding and sound audit practice. It is designed to assure that the audit work papers, which are the principal materials reflecting and documenting the conclusions of the audit, unambiguously reflect the judgments that actually were reached.

This understanding of proper audit practice was reflected in the Andersen document retention policy in effect last fall, which provided that documents other than work papers ordinarily should be disposed of when no longer needed but that such documents should be retained when litigation has commenced or is threatened.

Of course, precisely when that occurs, often we'll require the application of informed judgment to the particular circumstances of a given case. And that may well be a point on which reasonable people can differ.

As for the destruction of Enron-related documents, we know that on Oct. 23, just six days after the S.E.C. requested information from Enron, David Duncan, Andersen's lead partner on the Enron engagement, called an urgent meeting of the Enron engagement team, at which he organized an expedited effort to shred or otherwise dispose of Enron-related documents.

This effort was undertaken without any consultation with others in the firm or, so far as we are aware, with legal counsel.

Over the course of the next several days, a very substantial volume of documents and e-mails were disposed of by the Enron engagement team. This activity appears to have stopped shortly after Mr. Duncan's assistant sent an e-mail to other secretaries on Nov. 9, the day after Andersen received a subpoena from the S.E.C. telling them, ''No more shredding.''

Once this activity came to light, Andersen's response was immediate. Andersen notified the Department of Justice, the S.E.C. and all relevant congressional committees. At the same time, the firm suspended its records management policy and asked former Senator Danforth to conduct an immediate and comprehensive review.

On Jan. 15, approximately two weeks after our C.E.O. learned about the document destruction, Andersen dismissed Mr. Duncan. The firm also placed three other partners from the Enron engagement on administrative leave, pending completion of the investigation into their responsibility for these events.

The firm relieved four partners in its Houston office of their management responsibilities, and the firm indicated that it will take disciplinary action against any Andersen personnel who are found to have acted improperly.

I should address the question, why Andersen took the forceful action it did regarding Mr. Duncan. In our view, Mr. Duncan's actions reflected a failure of judgment that is simply unacceptable in a person who has major responsibilities at our firm.

He was the lead engagement partner for a significant client, exercising very substantial responsibility within the firm. Yet our investigation indicated that he directed the purposeful destruction of a very substantial volume of documents just as the government investigation was beginning. This is the kind of conduct that Andersen cannot tolerate.

When Andersen's C.E.O., Joe Berardino, testified before Congress almost six weeks ago, he observed that all of us here today, and many others who are not here, have a responsibility to seek out and evaluate the facts and take needed action.

We have tried to fulfill that responsibility. We uncovered the document destruction. Our firm's management brought it to the attention of the governmental authorities.

We already have started to implement decisive disciplinary and remedial action, and we're continuing our investigation resolved to take all steps that are necessary to restore public confidence in the integrity of our firm. . . .

MR. GREENWOOD -- Let me turn it to Ms. Temple, and since I don't have any other members here right now, I'll continue with the questioning.

And that memo is very explicit and it's very clear that you took action on that date in the form of that memo to make it crystal clear that no one was to destroy documents.

Can you explain to us why it took you until Nov. 10 to issue a statement with that clarity, when, a month ago, you knew that the question of retention and destruction of documents was going to be critical to investigations and to litigation?

MS. TEMPLE -- Yes, Mr. Chairman, I'll tell you the circumstances of sending the Nov. 10 memo and the facts, as I understood them, in the previous time period.

On Nov. 10, the memo we sent, it was drafted by our outside counsel, a law firm, Davis Polk & Wardwell.

MS. TEMPLE -- I did not personally retain that law firm. I know I spoke to a partner at that law firm on Oct. 16.

MR. GREENWOOD -- Is your testimony that you do not know when they were retained?

MS. TEMPLE -- I don't recall the exact date of the retention. I know I spoke to a partner at that law firm on Oct. 16.

MR. GREENWOOD -- O.K., you may proceed.

MS. TEMPLE -- It is the legal group's practice and protocol, when Arthur Andersen receives a subpoena or a request for documents, to send a written notification ----

MS. TEMPLE -- My recollection, the firm received a subpoena from the Securities and Exchange Commission at the end of the business day on Nov. 8. And a voice mail was distributed to the audit engagement team, notifying them of that the following business day. And once this e-mail was drafted, it was circulated to the engagement team.

Now, moving back in time frame to the previous period that you talked about, the firm does have a written policy that provides guidance. It is self-enforcing, and we trust our partners to exercise their good judgment and to consult with either the legal group or the practice directors as appropriate.

MR. GREENWOOD -- Let me interrupt you for a second. I asked Ms. Temple when Davis Polk was retained for this purpose, and she indicated that she, her response was that she didn't know.

Mr. Baskin, Mr. Andrews, do you know when this firm was retained?

And I will remind you that I asked you last night to be prepared to answer that question this morning.

MR. ANDREWS -- Mr. Chairman, the firm was retained on Oct. 9 and commenced work with us on Oct. 16.

MR. GREENWOOD -- O.K. And what was the purpose for retaining that firm on Oct. 9?

MR. ANDREWS -- Well, as if we -- just for a moment -- what was going on during that particular period of time, around that Oct. 9 time ----

MR. GREENWOOD -- Are they handling the potential litigation for the firm now?

MR. ANDREWS -- But what they were, are they handling it now? Yes, they are.

What was going on at that particular time was that we were involved, the company was closing its third quarter. They were about to reach conclusions on the third quarter. There were a lot of financial reporting issues occurring during that period that were obviously unusual and were concerning. So we engaged them to help us with the financial reporting issues and with possible litigation.

MR. GREENWOOD -- Mr. Baskin or Mr. Andrews, or even Ms. Temple, you may want to answer this question.

The document in Tab 29 in your binder is a copy of an Enron announcement to its employees and others on the Enron worldwide e-mail list, which I believe includes Andersen, on Oct. 25, 2001, telling them to preserve records relating to the related party transactions including the accounting of those transactions.

Did Andersen learn about this action by Enron, which by the way also seems rather late given that it is eight days after Enron learned of the S.E.C. inquiry? And if so, why didn't Andersen act right then to order its employees to do the same?

MR. BASKIN -- Well, as it pertains to --this is the first time I've read this memo -- but as it pertains to our actions, again, we believe that it was the engagement partners' responsibility in this situation, given what was occurring in that late-October period, which is the date of this memo, that there was enough information available that, in that partner's judgment, the instruction and oversight of that partner would in fact cause us not to destroy documents. And certainly, you would not convene a meeting and give instructions, if you will -- apparently that's what happened -- to destroy documents.

So we would agree that during this period it would be appropriate to, at a minimum, seek counsel before doing such an exercise.

And destruction of documents in that period is wrong, and we have admitted that. It is wrong. And once we learned of that in our investigation, we took firm actions. That is not Andersen, that is not what we encourage our employees to do, and it is inappropriate. . . .

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REPRESENTATIVE TAUZIN -- The gentleman's time has expired. The chair recognizes himself for a round of questions.

First of all, I want to turn to the week of Oct. 9. Now, you've testified Oct. 9 was the date that Arthur Andersen hired counsel, outside counsel, right? And the outside counsel firm was Davis Polk & Wardwell of New York, right? Is that correct, sir? Mr. Andrews?

MR. ANDREWS -- Yes, that's correct.

MR. TAUZIN -- My understanding is that's a litigation team, right?

MR. ANDREWS -- Davis Polk is a reputable firm. I'm sure they do litigation in other things, but we hired them for purposes to help us with the financial reporting and possible litigation.

MR. TAUZIN -- And possible litigation, right?

MR. ANDREWS -- Yes, sir.

MR. TAUZIN -- This Oct. 9 -- I want to turn to you, Ms. Temple, real quickly. Sometime before the week of Oct. 12, in your interviews with us, you informed us that there was a conference call about the Enron engagement team's compliance with the document retention policy.

Mr. Duncan says that it was you who raised the question about the retention policy. You had some other recollections of that conversation.

Give us your recollections of what happened in that conference call. And what date was that?

MS. TEMPLE -- Sure. Let me give you the context of my role in this matter.

I was asked, beginning on Sept. 28, 2001, to participate in a conference call. I understood that the firm was addressing one accounting issue that had arisen at that point in time.

And between that time and Oct. 12, I provided legal advice, including, after consultation with my supervisor and others, about specific documentation and retention issues.

MR. TAUZIN -- Ms. Temple, in that conversation, though, that occurred right about the time that the firm was hiring other litigation counsel -- you're the litigation attorney for the firm, isn't that correct?

MS. TEMPLE -- My background is in litigation, yes.

MR. TAUZIN -- But they just hired an outside litigation firm to advise them on possible litigation. About the same time, there's a conference call and there's a discussion about the retention policy. And obviously, the memo is sent out following it regarding that policy that includes information about destruction of documents as well.

You said something to our investigators about conversations in that conference call, referencing changing memos and deleting information from past memos, substituting a memo to the file for an old memo with a new memo. Is that accurate? Was that discussion held in that conference call?

MS. TEMPLE -- The advice I gave was different from that, Mr. Chairman. The advice I gave was ----

MR. TAUZIN -- What were the questions being asked that you had to give advice?

MS. TEMPLE -- The team was discussing a draft of a memo about a particular accounting issue on asset impairment. The advice that my supervisor and I gave initially was that that memo, which was being currently drafted, needed to be dated currently ----

MR. TAUZIN -- But what did they want to do that you told them they couldn't do? What did they ask you to do?

MS. TEMPLE -- I don't recall with respect to that particular legal advice that there was a question raised, but we pointed out to the team ----

MR. TAUZIN -- Was there not a request or discussion of substituting a new memo for an old memo and, in effect, backdating a memo to the file?

MS. TEMPLE -- No, there was not a question about backdating that particular memo, but the date ----

MR. TAUZIN -- Was there a question about substituting it and deleting information from the memo?

MS. TEMPLE -- There was a question in that current memo that was raised, can we delete a sentence, acknowledging that the firm had given incorrect accounting advice in the first quarter of 2001 ----

MR. TAUZIN -- What I want to know is ----

MS. TEMPLE -- ---- and I said absolutely not.

MR. TAUZIN -- What I want to know is, essentially, you said don't do that.

MS. TEMPLE -- Right.

MR. TAUZIN -- Is it customary that in those kind of discussions, when the firm finds itself in error, that anyone would suggest substituting memos or deleting information that was in memos already in the file? Was that unusual conversation?

MS. TEMPLE -- I expect the engagement partners to raise questions about documentation and seek advice, which they were doing.

The other legal advice that I gave on documentation was, the memos for any prior periods, first quarter of 2001, year-end 2000, could not be changed or deleted.

MR. TAUZIN -- You're telling them no changes. I understand that. I'm asking you, was it customary? Was this unusual for members of the firm to be talking to you about changing documents, altering documents, substituting documents that were on file already regards to Enron operations?

MS. TEMPLE -- At the time, based on my recollection, I understood that there were good-faith questions that were being asked about how to properly document the firm's ----

MR. TAUZIN -- Was it a good-faith question to change a memo that's already in the file with a new memo?

MS. TEMPLE -- I received the question and consulted with my supervisor and others -- --

MR. TAUZIN -- You said, don't do it.

MS. TEMPLE -- ---- and gave the advice. And to the best of my knowledge, the advice was followed.

MR. TAUZIN -- Were you shocked that they would raise such a question? Were you alarmed? Were you disturbed? Did it bother you, as litigation counsel for the firm, that any member would even suggest altering the record, altering documents, substituting memos to the file?

MS. TEMPLE -- I don't recall everything going on in my mind. I recall making sure, giving advice to make sure that the written record was complete and accurate and truthful. And I do recall seeing that my advice was followed.

MR. TAUZIN -- And my time is up, but you do recall also that Oct. 16 memo, that you did discuss with them changing that memo so that your name was not included because you might be a potential witness. Is that correct?

MS. TEMPLE -- I do recall giving legal advice after consultation with others, including outside legal counsel, Davis Polk, that the audit partners should document the recommendations and communications he had with the client about the client's, Enron's, draft press release.

And I did, after consulting with outside legal counsel, and it's our standard practice in the legal group to advise the engagement team not to write down and discuss in their memos legal advice that the legal group might give, because it might be a waiver down the road of attorney-client privilege.

The chair recognizes the gentlelady, Ms. DeGette, for a round of questions.

REPRESENTATIVE DEGETTE -- Thank you, Mr. Chairman. . . .

If you can tell me very briefly, under what circumstances you believe documents should be retained? When is it, what is the trigger under which documents need to be retained?

MS. TEMPLE -- There are several provisions in the policy that address retention.

MS. DEGETTE -- And, in fact, there's an exhibit to document No. 27 here, Exhibit 1, that says examples of situations to be reported, and that's a list of examples of situations where, if you see that coming, then you treat that as threatened legal action under Section 2.5 of the litigation procedures and you retain them. Is that right?

MS. TEMPLE -- Yes, there is a list of examples to be reported to the legal group that calls for notification. I don't believe ----

MS. DEGETTE -- And that would trigger, then, a notification such as the one that you made, I think, on Oct. 12 in your e-mail, right?

MS. TEMPLE -- My understanding ----

MS. DEGETTE -- I mean, it's not just threatened litigation, is it? There's other things that would trigger Arthur Andersen to recommend retention of documents.

MS. DEGETTE -- Or other situations, right? And one of those situations would be oral indications from management or owners that the firm was somehow responsible for the failure of operations or the failure to detect fraud, right? That's the third one on the list of examples of situations to be reported, right?

MS. TEMPLE -- Right. And this list of examples is from the policy statement No. 780, which ----

MS. DEGETTE -- Right.

MS. TEMPLE -- ---- requires notification to the legal group of those examples.

MS. DEGETTE -- -- O.K. So now, there was a memo that was written on Aug. 15, 2001, from Sherron Watkins, an Enron vice president, alleging improper accounting and all kinds of other problems. Was the legal department aware of that?

MS. TEMPLE -- I don't recall if I was aware of that particular document. I was aware of circumstances about allegations by an employee of Enron, and the fact that Vinson & Elkins had conducted an investigation and concluded and reported positively to the board the week of Oct. 8.

MS. DEGETTE -- So you were aware that in August an employee had made these allegations, and then Vinson & Elkins had done an investigation also in August. Is that right?

MS. TEMPLE -- Not exactly.

MS. DEGETTE -- No?

MS. TEMPLE -- Before Oct. 12 I was aware that Vinson & Elkins had been engaged and completed and reported orally to the board that the results of their investigation were positive.

And the engagement team also assured the practice directors who were being consulted at that time and myself that they had reviewed the information about the allegations, and that the allegations were, to the extent that they had any information in them in reference to transactions, involved transactions that the audit team had carefully reviewed in its prior work.

MS. DEGETTE -- O.K. So you thought that, because Vinson & Elkins had said there's no problem, that that did not trigger any kind of requirement. Is that correct? Yes or no, please.

MS. TEMPLE -- No, that's not ----

MS. DEGETTE -- O.K, thank you.

MS. TEMPLE -- ---- what I was thinking at the time.

MS. DEGETTE -- Now, what caused you to send that memo on Oct. 12? Did you do that on a regular basis?

MS. TEMPLE -- There were several factors that caused me to send the memo on Oct. 12.

MS. DEGETTE -- O.K, let me back up for a minute. How many times in your two years, roughly, at Andersen did you send memos like this, reminding people of the document retention and destruction policy?

MS. TEMPLE -- I don't recall the number of times. I have referred ----

MS. DEGETTE -- Had you done it before?

MS. TEMPLE -- I believe I had referred people to the firm's policies on document retention and destruction, as well as ----

MS. DEGETTE -- How many times before?

MS. TEMPLE -- I don't recall the number of times.

MS. DEGETTE -- One time? Five times? Ten times?

MS. TEMPLE -- To the best of my recollection, at least one other occasion, and I ----

MS. DEGETTE -- And was that in relation to Enron, or was that in relation to another client?

MS. TEMPLE -- No, that was not in relation to Enron. . . .

MR. TAUZIN -- I just want to clarify your testimony to the gentlelady's questions. You indicated that Vinson & Elkins issued a positive report. I want a quote from that report.

''There is a serious risk of adverse publicity and litigation. It also appears, because of the inquiries and issues raised by Ms. Watkins, Arthur Andersen will want additional assurances that Enron had no agreement with LJM that LJM would not lose money,'' et cetera.

Is that a positive report?

MS. TEMPLE -- As I recall, the outcome of the report, as reported to me, the ----

MR. TAUZIN -- You have a copy of this, I believe we've submitted, you have a copy of this letter, don't you, from Vinson & Elkins? You saw it yourself, didn't you?

MS. TEMPLE -- After the week of Oct. 12, I did receive a copy ----

MR. TAUZIN -- But here's the point, Ms. Temple. I mean, we're trying to get the facts here. But if you will characterize a report that indicates a decline in the value of Enron's stock and the serious risk of adverse publicity and litigation as a positive report from the attorneys, we're going to have trouble with your testimony today.

MS. TEMPLE -- Later on, when I did receive a copy of the report and sent a copy to outside counsel, I did note the comments that you referenced. But I also noted that the law firm reported that there was nothing further to follow up on at that point in time.

And the law firm was representing Enron Corporation, not Arthur Andersen. And I understood and recall at the time thinking that there might be a challenge to the business judgment decisions of Enron to enter into certain transactions.

MR. TAUZIN -- Did you know at the time that Vinson & Elkins had signed off on these agreements as a counsel for the firm? There may have been a conflict of interest in them commenting on them now?

MS. TEMPLE -- I don't recall the circumstances ----

MR. TAUZIN -- You're not aware of that?

MS. TEMPLE -- I don't recall at this time.

MR. TAUZIN -- Thank you, gentlelady.

MS. DEGETTE -- Do you recall a conversation with Mr. Duncan in which he assured you he was gathering the documents to preserve them? Do you recall specifically having that conversation?

MS. TEMPLE -- I don't recall ----

MS. DEGETTE -- According to your notes?

MS. TEMPLE -- ---- his specific words, but I do recall that we had a group conference call on Oct. 23. And I have these notes from that call.

MS. DEGETTE -- And the notes don't say anything about preservation, do they?

MS. TEMPLE -- The notes. . . .

MS. DEGETTE -- Yes or no?

MS. TEMPLE -- The notes do not have the word ''preservation'' in them.

MS. DEGETTE -- And on Oct. 12, you had just sent a memo to Mr. Duncan and his group, advising them of the Arthur Andersen document retention and destruction policy, which involved destroying of all of the notes and backup documents and so on. Correct?

MS. TEMPLE -- No. Actually, I sent a reference to the policy to the practice director in Houston.

MS. TEMPLE -- Yes, I sent it to the Houston practice director, based on several factors ----

MS. DEGETTE -- Just cutting through, in this Oct. 23 phone call, you don't recall specifically -- and your notes do not reflect -- you telling Mr. Duncan to retain records, do they? Yes or no.

MS. TEMPLE -- I don't see that in my ----

MS. DEGETTE -- Yes or no, ma'am?

MS. TEMPLE -- No, it's not. . . .

MS. DEGETTE -- Thank you. I yield back.

MR. TAUZIN -- Ms. Temple, if you received this e-mail from Mr. Duncan indicating he was collecting all these documents, and assumed that he was preserving them, why did you feel it necessary on November the 9th to leave a voice mail with Mr. Duncan, directing him to preserve those documents because of the receipt of the S.E.C. subpoena? If he was preserving them already, why on earth did you feel it necessary to advise him to preserve them on Nov. 9?

MS. TEMPLE -- It is our firm's practice to notify the engagement team when the legal group receives a subpoena. I believe it had been received in the general counsel's office, and I promptly notified the engagement partner and reminded about the need to, at this point in time, we'll have to collect the documents for production.

MR. TAUZIN -- Well -- but you understand why common sense gets a little lost here. If you're in a position where you know that the retention policy also means destruction -- you know that, didn't you?

MS. TEMPLE -- There are aspects of instruction guidelines ----

MR. TAUZIN: -- Yes.

MS. TEMPLE -- ---- in that policy. Yes.

MR. TAUZIN -- So you know that the retention policy, as long as it's operating, permits Mr. Duncan and however many people he has working for him to destroy documents.

You hear, you get a memo from him saying, ''I'm gathering them all up.'' And you tell us today that you assumed that meant he was gathering up to preserve them for litigation, not to destroy them.

Why would you even bother to say, ''By the way,'' on Nov. 9, ''quit destroying documents. We've just got an S.E.C. subpoena?'' Why would you do that?

MS. TEMPLE -- The legal group notifies the engagement partner and engagement team when subpoenas are served. It was received by the legal group, and I felt it was appropriate to follow the firm protocol to notify the engagement partner.

MR. TAUZIN -- Yes. But, you see, we also have your memo on November the 10th, and I'm going to read you from it. It says, ''One of the first things we must do in preparing to respond to these subpoenas and lawsuits is to take all necessary steps to preserve all of the documents and other materials that we may have relating to claims that are being filed.''

Now, if that was already being done, if you had received a notice from Mr. Duncan that he's gathering them all up to preserve them, if that was your conclusion, why would you say, ''the first thing we have to do now, now that the subpoena has arrived is start preserving these things?''

You see, common sense, Ms. Temple, common sense tells me that destruction was going on up until this time when the subpoena arrived and that until you said, ''preserve them'' they may well have been gathered up for destruction, and that somebody should have known that. And was that somebody you?

MS. TEMPLE -- I never counseled any destruction or shredding of documents. And I only wish that someone had raised the question so that we could have consulted and addressed the situation.

Correction: January 26, 2002, Saturday Transcription excerpts yesterday from remarks at a House committee hearing about the Enron Corporation's collapse used a mispelled given name in some copies for an executive who had questioned the company's accounting practices. She is Sherron Watkins, not Sharon.